Can The IRS Seize Bitcoin?

The IRS recently announced an alarming increase in cryptocurrency seizures. Find out why and how the IRS can seize your Bitcoin.

In the latest attempts to weed out bad actors from the crypto space, the IRS announced they had seized over $3.5 billion worth of cryptocurrency as of August 2021. The reports come amid growing fears that criminals are increasingly turning to crypto to commit illegal activities, including money laundering, sale of narcotics, fraud, and terrorism. However, the IRS’ seizures are not new events directly tied to Bitcoin.

The US government doesn’t recognize Bitcoin as a legal tender but allows people to transact on crypto-friendly platforms and exchanges such as bitcoin equaliser. It considers virtual currencies like Bitcoin assets subject to property and tax regulations. Thus, the IRS can seize Bitcoin by court order, the same way as it does with other investments, including real estate property, cars, or money in an individual’s bank account. Here’s how and why the IRS can take your Bitcoin.

How the IRS Can Seize Bitcoin

The Internal Revenue Service’s Criminal Investigation unit says crypto assets accounted for about 93% of its overall seizures in 2021. According to them, Bitcoin plays a significant role in cybercrime mainly due to its decentralized peer-to-peer network, allowing people to send and receive payments worldwide without external oversight.

More than half of the seized Bitcoin came from a dark web black market in the Silk Road case. It was the first major law enforcement crackdown. The IRS hired a crypto monitoring firm called Chainalysis to track and seize hacked and stolen Bitcoin from the site by anonymous actors. The funds are now awaiting action from the public.

Experts predict the IRS’ crypto seizures could increase in the coming years. They say Bitcoin is becoming a popular currency among criminals because of its increasing value and prominence in mainstream economic sectors. The IRS has used crypto monitoring firms to facilitate Bitcoin seizures in the past but, they are currently beefing up their Criminal Investigations Unit to handle the cases independently. Nevertheless, they can seize Bitcoin through a technical seizure or criminal forfeiture.

Why the IRS Can Seize Your Bitcoin

The IRS has the authority to seize Bitcoin if they believe the funds link to tax fraud and other related crimes. Tax fraud occurs when an individual or entity willingly and intentionally falsifies their tax returns to limit the tax they should remit. The IRS can file tax fraud charges against an individual or entity if there is probable cause that they used Bitcoin to evade their tax obligations.

The IRS assumes that Bitcoin and other cryptocurrencies encourage tax fraud because they operate on a peer-to-peer network, making it highly impossible to track people’s transactions and assets. However, a seizure does not mean you will lose your funds. The case must undergo thorough investigations, and you could still get your Bitcoin if you are not found guilty. Consequently, the IRS will forfeit your Bitcoin and even award additional penalties if it proves the funds facilitated a tax fraud and other related crimes.